Archive for the ‘Credit and Debt Advice’ Category

Lessons Learned: The Frugal Future

Prior to the recession, I thought my husband and I were managing our finances pretty well.  Sure, we had some credit card debt, but we’d already paid off a couple of cards and were starting to make inroads on the balances of those that remained.

Then the recession hit and my husband’s job disappeared with the demand for new homes as the foreclosure wave drowned the housing market. My business, which up to that point, had been doing well, was suddenly floundering and we were left with facing the harsh realities of having too little income to make ends meet.

What had been manageable on our prior income was no longer manageable and the delinquencies began as we started to prioritize our expenses. Obviously food, shelter, and the utilities were priority number one. Everything else, including those credit cards that we had been diligently paying down, would have to wait.

Today, after two years of financial devastation, the money picture looks better. My husband is working and my business is picking up. We had to move to Canada to make it happen, but we are much better off financially now than we were six months ago.

The funny thing is I don’t want to spend money, now that I have it to spend. I still cringe even when we’re buying groceries and I see the numbers on the cash register terminal inching toward that $100 mark. My husband wants to buy me warm winter clothing because of the much colder winters here. I  know I probably do need the warmer clothes, having come from California, but I can’t help feeling guilty about buying a sweater. I would rather keep that money in the bank.

While I hope I don’t spend the rest of my life afraid to spend money where it needs to spent, I am glad that I have learned a new respect for the value of a dollar and that I will always think twice before spending. I think that this new found frugality will help us to never, ever again have to relive the devastation that were the last two years of our lives.

What about you? What lessons had this recession taught you and how were you changed by it?

Frugal Living: Survival Mode

Most personal finance blogs are filled with wonderful advice, provided that you’ve got a stable source of income that is adequate to support yourself and your family and enable you to save money at the same time.  While this advice is great for those in stable financial shape, it doesn’t work quite so well for those who are struggling to survive day by day. To that end, I would like to write a post aimed at those of you who are barely getting by.

Let me start off by saying that the advice herein comes from the school of hard knocks. I was there as recently as a few months ago and I can readily empathize with how you feel and your day to day struggles. I know what it is like to spend a day on the phone making payment arrangements with the utility companies for this month’s payment because I had just made last month’s payment a few days ago. I know what it is like to receive call after call from collection agencies hounding me for money I just don’t have. I know what it is like to be at the brink of foreclosure and that sick, sinking feeling you get when you know you’ve given all you can and there is nothing left inside you to give. And yet, you must go on. You must spend your hours figuring out how best to parcel out what little bit of money you have to keep a roof over your family and keep the lights on.

The first step is to figure out how much income you currently have coming in. Once you have that, then you can prioritize your expenses and debts.

Obviously, the most important expense is your rent or mortgage. If you can keep paying it, even if it takes a huge chunk out of your available money, then that is payment number 1. If you can’t make your rent, be sure to let your landlord know. How understanding your landlord is depends on him or her. If you’re only renting, you can also always find cheaper accommodations. If you have a mortgage that you can no longer afford, then that is a stickier issue. If you intend on keeping the house, then contact your lender right away and ask for a loan modification. The earlier you get started on this, the better, because, let me tell you, it can take a year or more to get into a successful loan modification!

Next are the utilities. Most utility companies are very good at working with you on payment arrangements. Just explain that you are having financial difficulties and they will be willing to work with you. Sometimes you get a representative on the line who won’t cooperate. If this happens to you, ask for a supervisor and more often than not, that does the trick. As a shout out, the Verizon folks were always pretty good with me, barring a few individuals, as was Southern California Edison.

Following that is food. There are some tricks here to help you get by with less, and many of you probably already know them, but I am going to share them here anyway:

1: Check the mail for your weekly circulars. These will have the sales that are happening that week. The basic idea here is to look for items that you use that may be on sale. Many times you can get decent cuts of meat like london broil (top round in Canada) for as little as $1.77 a pound. Similar sales will be on for ground beef and chicken. You can shave off a good $20-50 off your weekly grocery bill by hitting up all the grocery stores with the best sale prices.

2: Chicken is your friend because it  is pretty cheap. It is also healthy, and eating healthy will be quite challenging on a limited budget. You will probably find yourself eating a lot of it. To help with the boredom of eating the same foods week in and week out, search for recipes on line or try different marinades. (These will often be on sale for cheap as well.)

Next, this is a no brainer, but cut out any unnecessary expenses such as cable or satellite tv. You don’t have to cut it out all together, but you can drop down to the basic package to cut costs.

Finally, consider moving away from your current location. Even in the States, there are regions that have not been as hard hit as some other areas have. The northern central region of the country is doing ok, and so are some southern states. Both coasts have been buried by the economy as well as the sunbelt region. You may have better luck finding work in areas where the ratio of workers looking for work and available jobs is a better percentage.

If You’re Poor, Forget College

Ok, I haven’t done one of these in a while, but I was browsing through my Google Reader today and in comes this post from Frugal Dad.  It’s a post about student loan debt, which I can agree with the author is too high. However, the guy actually says this nonsense:

Do you need to go to college? A college degree not only doesn’t guarantee a job, but it also doesn’t guarantee a high paying job. Before you go to college because “it’s expected of you,” or “that’s what the cool kids do,” you should take a few minutes and try to determine your career goals, what is required to achieve those goals, whether or not you need a college degree, and if it is worth the expense. Many times college isn’t the answer and taking student loans while you try to determine your career goals is a recipe for disaster.

Well, instead of throwing a bunch of opinion out there without any facts to back it up, let’s take a look at some hard numbers. The unemployment rate for those with no degree is 10.1% as compared to only 4.5% for those with a bachelor’s degree. The numbers don’t lie. While the author is correct: a college degree doesn’t guarantee you anything, it just may make finding work a little easier for you. You need every edge you can get these days!

Here’s another fact: many jobs that previously did not require a college degree now require one. For example, an entry level manager trainee position at Enterprise Rent-A-Car, which really is a glorified sales position, requires a college degree.  Not having a degree can seriously limit the number of jobs available to you today.

What troubles me more than the stupid platitudes espoused in this post as well as many other similar ones I have seen since the economy went into the ditch is that we now seem to be “ok” with telling people with humble backgrounds that they need not even try to reach beyond the station to which they were born. Think about what posts like these suggest: you should not go to college if you cannot afford to pay for it yourself, or if your parents cannot afford it. Furthermore, you ought to evaluate any degree you do pursue by its dollar value, not by personal interest or by the desire to look at a career as more than just a way to make money.

Look, I am not going to suggest that college is the answer for everyone or that it can guarantee you anything, because it isn’t and it can’t. However, if you want to go to college and you need to take out a loan to do it, then you ought to be able to do so, regardless of the cost later. Student loans need to be reformed to be in line with what they used to be: an investment in the future. Investments may not pay off and that’s the risk the banks take in loaning the money. Furthermore, repayment terms need to be made easier and interest rates capped. Half the problem with student loans today is how onerous they are to pay back. You shouldn’t have to indenture yourself to the banks for the rest of your life for a chance at a piece of the pie.

Finally, I just want to say that employers also need a reality check. Is it really necessary to require a college degree for a job that pays $30K? Do you really need to limit your pool of qualified employees to those with college degrees? A bit of common sense here would be welcome about now.

Should College-Age Kids Have Their Own Credit Card?

Should college-age kids have their own credit card? That’s a difficult question to answer and a lot depends on the maturity level of the kid. One 18 year old may be vastly more mature and financially savvy than another, so making the blanket statement that no college-aged child can manage his or her own credit card isn’t quite correct.

There is no doubt that giving a credit card to someone who doesn’t yet have a stable income is risky, but, if your college-aged child is otherwise responsible, then allowing them to begin to build that all-too important credit history early may be a good choice.

Regardless of whether your child is a spendthrift or a miser, be sure to comparison shop for the best card for him or her, and along the way,  provide a little financial education as well. It is too bad that high schools don’t offer money management classes and sadder still, colleges are all too willing to lend money to their students without educating them on the interest they are accruing and the repayment terms. In this, you, as the parent, need to take the lead on this.

The CARD act of 2009 has some special provisions regarding the issuing of credit cards to those under the age of 21. Among these is the requirement no credit card may be issued to someone under 21 unless they a.) have a cosigner, or b.) they can demonstrate the ability to repay the credit card balance. In addition, no “prescreened” credit card offers may be sent to those under the age of 21.

Having good credit is of vital importance these days, and young people need to be taught sound money management practices early so that they can avoid credit troubles down the line. Having a credit card and using it wisely is a good way to start learning these principles.

How Many Credit Cards Are Too Many?

There is no hard and fast answer for this question. It is true that lenders look at open credit lines as a temptation to get into more debt, but it is far more important to look at your debt-to-income ratio than just your total number of credit cards. In fact, your debt- to- income ratio can tell you if you, as an individual, are carrying too many credit cards.

Your debt-to-income ratio is your total amount of debt divided by your income. To be safe, this number should never be greater than 25%. When you apply for a loan, the lender may look at your credit file and take all of your available credit, even if you haven’t used it, and do this calculation to see what your debt-to-income ratio could become should you max out all of your credit cards. If the number is greater than 30%, then the lender will likely consider you a higher risk.

You can do this calculation yourself and if your debt-to-income ratio, with all of your credit lines maxed out is greater than 30%, then you probably are carrying too much plastic. You should consider closing some of your open accounts. Be careful, though, not to close your oldest credit accounts. Doing this will negatively affect your FICO score since account age is one of the influencing factors.

Walking Away To Better Times

Much ado has been made about “walking away” from your mortgage by the financial services industry and the government. They say that it is wrong, that you signed a contract when you bought your home and you should honor it. They promise dire consequences ahead for you if you just walk away and hand your lender the keys to your home.

Homeowners walking away from their homes certainly is a problem for the banks: it causes them to have to face some serious losses and is a gigantic reality check. Banks don’t like reality checks much…they love playing with their funny money.

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Warning To All Capital One Customers

Capital One will apparently charge you a late fee if your payment is made past the payment cutoff time, regardless of time zone differences. For example, one lady was charged a late fee because she made her payment 45 minutes after the cutoff time, which was 5PM. However, she’s on the West Coast and Capital One’s payment center is on the East Coast.  Going by her time zone, her payment was on time.

It appears that Capital One is taking advantage of a major loophole in the CARD Act, which does allow credit card companies to set a 5 PM cutoff time for accepting payments, but fails to specify that the cutoff time must be time zone neutral, meaning that payments will be counted as being made on time according to the time zone of the customer.

It should be noted that the government had to make it a law that the credit card companies must give you enough time to pay your bill, and that the amount of time had to be spelled out to the letter. The government should have therefore known that it would need to specify time zone issues as well.

Once again, you can count on the credit card companies to interpret the law in any way that best increases their profits. Fee income in the giant unregulated world that existed prior to the CARD Act’s passage has left the banks and credit card companies feeling entitled to screw their customers and make big bucks doing so.

Until the government acts, if it even will, to amend the law for these situations, be sure to make your payments in the morning that they are due, or if possible the day before, to avoid any chance that you’ll be screwed into paying a late charge.

When Five Days Late Equals Thirty Days Late

American Express apparently starts counting the days you’re past due from the date your billing statement is printed instead of the date your payment is due. This policy seems to fly in the face of the CARD act rules which state that credit card companies must give you at least 21 days from the time you receive your bill to make your payment.

One reason they might be getting away with this is because, according to Latoya Irby:

Fortunately, this is just an issue of phrasing and doesn’t impact late payment penalties or credit bureau reporting. It can just scare you into thinking your balance is seriously delinquent when it’s only mildly delinquent.

Another reason might be that American Express is a “charge” card rather than a credit card. There may be loopholes in the law that allow this.

Still, this policy smacks of operating in bad faith and, really, I do not see how a company can expect payment on the day the bill is printed when you haven’t even had a chance to receive your bill!

Perhaps AMEX customers ought to complain to the FTC.  American Express is clearly violating the spirit of the CARD Act, which aims to restore fairness to credit card company policies.

Avoiding The Debt Trap

Not all debt is bad and most people can’t avoid accumulating some debt, unless they’re heir to some massive fortune. Having said that, some debt is just plain toxic and should be avoided like the plague.

Payday Loans/Cash Advances

Payday loans let you borrow money from your next paycheck. They’re meant to act as a stop-gap when you have an emergency expense that is outside your budget. However, payday loans are a deadly trap because of the way they’re structured and the expensive costs associated with them. For one thing, they’re extremely short term and must be paid back, in full in one to two weeks.  If you’re already living paycheck to paycheck,  you’re almost certain to be short after paying back the payday lender and need another advance from your next check, plus an additional fee to last you until your next pay day. This is how payday lenders make their money and how the payday debt trap closes.

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Moving For A Chance At Prosperity

Well, my husband and I moved 2,300 miles, from Lancaster, CA, to Winnipeg, Manitoba, Canada for the chance at a better life.  It is difficult for me, as an American, to say this, because I was always taught that people came to America to look for a better life.  For a long while, that was primarily true: many immigrants came for the promise of the American Dream, and many have achieved it.

However, times have changed. The last forty years have seen a weakening in strong labor, the rise of outsourcing, and the big box stores that crowd out the smaller competition. Wall Street has been given free reign to pursue astronomical profits as their due. All of these things, in combination, have made the American Dream nothing more than a myth. Today’s generation will be less prosperous than were their parents, for the first time in decades.

The pundits and politicians alike tell us that this is the “new normal” and we’re just going to have to live with diminished expectations. I hear this and wonder where the America I grew up in went? Where is that can-do spirit that allowed us to put a man on the moon in a single decade? Where did the strong leaders like FDR go, who regularly went before the nation to remind us that “we have nothing to fear but fear itself?”

Well, my husband and I have had enough of it. We’ve had enough of watching our savings and hard work go down the drain as we struggle to make ends meet without work. We’re sick of the politicians playing games with the unemployment lifeline that so many Americans depend on today, and we’re sick of the giveaways to the banks and other vested interests who ruined the economy in one fell swoop.

So, yes, I moved out of the United States to Canada in search for a better life. And guess what? We are on our way there. My husband found work not three weeks after we arrived and we are looking at buying a house here. The economy is thriving…no dearth of jobs…and healthcare that you don’t have to mortgage your firstborn to use.

I’d like to hear from you. How many of you have moved elsewhere (even just to another state) in search of a better future? How many of you are considering it?

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